Given the downgrade by Moody's of global insurance stocks, and,
losses of at least $35 billion from the earthquake,
untold losses from tsunami,
interruption of basic services such as water and transportation,
food shortages,
plant shutdowns,
aftershocks,
potential radiation leaks,
and a massive shutdown of many supply chains including plant closings,
I think there will be a ripple effect on financial markets for some time.
The 6.18% loss for the Nikkei today might be just the start.
Given Japan's huge public debt equal to 200% of GDP along with political infighting lasting for many years, it is a good bet that the economy will suffer. It will be interesting to note if credit rating agencies downgrade Japanese public debt.
Even before the earthquake, analysts projected that Japan could face a debt load of 300% of GDP by the end of the decade because of a rapidly aging population and high need for health care.
Though I have not done any formal estimates, it could be possible that the earthquake and tsunami and the corresponding rebuilding effort could increase Japanese debt by several hundred billion dollars or more.
Privately, some have communicated misgivings about political activities related to the ongoing nuclear plant disaster. This demonstrates to me that even in the face of a major disaster, there continues to be political bickering.
The Japanese political system is not strong.
Overall, this week will be critical. Folks should watch financial markets closely for signs of the future.
My heart goes out to all of the Japanese people, especially those who are suffering.
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